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World trade figures issued by the Dutch institute CPB have been published for the month of August.
Year-on-year, the improvement observed that has started in June has been extended to August with an increase of 3.8%. This figure is still limited as before the 2008 crisis, average trade growth was 7% per year.
On the graph, however, there is a marked divergence between the pace of trade and the export order indices of the US, Japan and the Euro zone. Usually these two indicators have consistent profiles. World trade is up while the average of these 3 Markit indices continues to deteriorate. We already noted this point a month ago but it is confirmed clearly.

The rebound in trade is mainly seen in emerging countries, particularly in Asia, but Latam and Central Europe are also on the rise.On the other hand, the situation remains weak on developed countries’ side.The trend is stable and is penalized by the pace of the USA and Japan for which the trade retreats over 3 months. The US which has increased tariffs is paying a high price for this policy. Asia, the US target, is doing well. That’s amazing.

Let’s start with the global outlook – are signs on the world economy still as robust as they were?
The situation has changed since the start of this year. The world economy was fuelled by faster world trade growth in 2017, but this is no longer the case. Trade momentum has slowed since the start of 2018 and no longer looks able to drive the same impetus across the economy as a whole.
Business surveys worldwide point to a slowdown in export orders, reflecting more sluggish momentum worldwide.Why did we see an acceleration in 2017?Central banks loosened monetary policy in 2016, at a time when inflation was low in most countries, bar a few exceptions such as Russia and Brazil. The Federal Reserve raised its leading rates at a very slow pace and steered its communication to ensure that investors were not spooked, especially in emerging economies.
More accommodative monetary policies kindled domestic demand in each country, spurring on economic activity and trade, and triggering broad-based momentum that was beneficial for all concerned and set the world economy on a virtuous trend.

The Chinese’s retaliation measures have a strong impact on soybean.
The US price of soybean has dropped dramatically while at the same time its price in Brazil is surging.
Brazil which is already the main soybeans’ exporter will take advantage of the current mayhem between the US and China How a crop used in hog rations and cooking oil got caught up in a huge trade war — Read here www.bloomberg.com/graphics/2018-soybean-tariff/

Today, tariffs on USD 34bn of Chinese imports in the US will increase and China will do the same on US imports in China. That’s a nonsense policy as it will hurt both American and Chinese people.

I thought it was interesting to come back on the globalization process as described by Richard Baldwin in an interview with ProMarket. This interview was done on March 6 and Trump just started to announced measures on tariffs. Baldwin view is now more severe on Trump’s trade policy.

In a tweet today, he mentioned Navarro and Lighthizer a close counselor on trade and the US trade representative. ”Navarro & Lighthizer want to undo the global value chains – not liberalize trade that will encourage them”

This cartoon he tweeted this morning also reflects the absurdity of the current US trade policy

Observers in rich countries are seriously “misthinking” globalization, argues Richard Baldwin—and he has taken it upon himself to correct our error.
Now head of London’s Centre for Economic Policy Research and founder of its influential economics portal VoxEU.org, at the beginning of the 1990s the professor of international economics sat on George H.W. Bush’s CEA and for over a decade now has been attempting to make sense of the changes to international trade unleashed by the IT revolution about that same time.

The outcome of this decade of thinking—and what Baldwin offers as the solution to our own misthinking—is his 2016 book The Great Convergence (which Larry Summers classed in the company of no less than Keynes as one of the five best books on globalization).

The book takes up the task of connecting the logic behind two remarkable changes to the distribution of global wealth:
1) the Great Divergence, when, starting with the Industrial Revolution in the early 1800s, the wealth of the G7 countries overtook that of the ancient civilizations, which had held the bulk of the world’s wealth for four millennia, at an extraordinary clip; and
2) the Great Convergence, which took off in the 1990s and has seen “a century’s worth of rich nations’ rise [reversed] in just two decades.”

Baldwin explains these grand processes of divergence and convergence with what he calls the “three-cascading-constraints view” of globalization. As he tells it, prior to the Industrial Revolution, production and consumption were “bundled” geographically because of three constraints on trade: high transport costs, high communication costs, and high face-to-face interaction costs.

The first “unbundling” of production from consumption happened thanks to the steam engine and other innovations in transport starting in the 1800s. Production remained geographically clustered, though, due to high communication costs that required technical knowhow to be physically near other factors of production.

This all changed with the IT revolution of the 1990s, which lowered communication costs and facilitated knowledge transfer across global supply chains. This supercharged the Great Convergence between the G7 and the emerging economies.

The third constraint—the high cost of face-to-face interaction—remains largely in place, but not for long, says Baldwin.

In a recent interview with ProMarket, he explained why he believes the cat is out of the bag for globalization and the third constraint is likely to continue to disintegrate—regardless of Trumpism, tariffs, or trade wars.

Nails, lobsters, peanut butter or bourbon all these products are suffering from the trade measures taken by the White House. The disruptions they imply are just anecdotal now but this will change progressively as these measures will persist. From microeconomic at the beginning, the impact will become macroeconomic and at the expenses of all.

Interesting remark from Bloomberg @economics. After Chinese retaliation measures, Trump has decided to extend tariffs to USD 200bn of Chinese imports in the US. What will be the Chinese reaction as US imports in China have not this level. The trade war will damage growth for sure